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The U.S. presidential election is tomorrow. Last week, in Part 1 of this series, we made a case that the state of the economy is a bigger driver for Wall Street than who wins and takes over the White House. This week, we add some color to the presidential cycle over a typical four-year term and examine how that cycle affects the market. Historical data suggests that Year 1 is a honeymoon year, with a feeling of optimism that usually is good for stocks. In Year 1, the S&P 500 has been up 14% on average for more than 50 years, going back to 1980. Year 2 is still an up year for stocks, but only by about 5% as some of the challenges of the office surface and midterm elections cause distraction and uncertainty. Year 3 has proven to be the strongest, with stocks up about 15%. As sitting presidents put their candidate hat back on, there is increased spending and often tax breaks. Year 4 dips again, with stocks rising a smaller 4% due to uncertainty about the pending election. This week, in Part 2 of our review of the election and sectors, we look at Energy and Healthcare to see how they might perform under either candidate. While our analysis does look at specific policies, it essentially boils down to the broad approach of the candidates.

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Stocks were quiet last week -- until Thursday, the last day of October, when it felt like the major indices fell through a trapdoor. The S&P 500 (SPX) dropped 1.9%, the Nasdaq plunged 2.8%, and the Nasdaq 100 (QQQ) slid 2.5%. Those were the largest one-day losses since early September. October logged the first monthly decline for the SPX since April and the first Nasdaq and QQQ monthly loss since July. While the majors didn't break any key chart support levels or important intermediate-term averages last Thursday, price action did trigger some bearish short-term alerts. The SPX fell right to its 50-day and bounced, but the size of the decline turned the 5-day/13-day exponential moving average (EMA) crossover bearish for the first time since early September. The 14-day Relative Strength Index (RSI) broke its uptrend off the lows since early August and lost the 50 level. The 21-day Rate-of-Change (ROC) was close to turning negative. The daily Vortex Indicator went to a sell. Volume was heavy on all indices (creating a distribution day). Finally, the SPX gapped down out of a bearish wedge pattern. The key area that needs to hold for the SPX is 5,650 (breakout level) to 5,677 (recent low). Below that range, a ton of downside targets come into play between 5,400 and 5,590. The QQQs also gapped down and out of a bearish wedge and have seen multiple distribution days over the past eight days. There was a bearish 5/13 EMA crossover and the ETF is just six points above its 50-day moving average. If the 50-day (at 481.60) is lost, there is a support zone between 450 and 475 that includes the 21-week EMA at 475, the 200-day at 458, and some retracement levels. (Mark Arbeter, CMT)

Monday Tee Up: The Election and Interest Rates This week features the election and a Federal Reserve interest-rate decision. Suffice it to say, the markets may be volatile. Last week, the Dow Jones Industrial Average was lower by 0.2%, the S&P 500 lost 1.4%, and the Nasdaq shed 1.5%. For the year, the Dow is higher by 12%, the S&P is up 20%, and the Nasdaq has gained 22%. The earnings calendar is packed again. On Monday, Palantir Technologies, Marriott International, and American International Group all report. On Tuesday, Apollo Global Management, Yum! Brands, DuPont, Cummins, and Archer-Daniels Midland. On Wednesday, Qualcomm, McKesson, Novo Nordisk, Toyota Motor, and Take-Two Interactive. On Thursday, Motorola, Arista Networks, Airbnb, Becton, Dickinson, and Duke Energy. And on Friday, Paramount Global. So far, 349 (or 70%) of the S&P 500 companies have reported. Earnings are coming in 8.4% higher than in the prior-year quarter. Communication Services, up 24%, and Technology, up 19%, are leading, while Energy, down 27%, is underperforming. For full year, Argus forecasts earnings growth of 7%-9%. On the economic calendar, the big day is Thursday, when the Federal Reserve comes out with its next decision on interest rates. Odds that the Fed will cut by 25 basis points (bps) are essentially at 100%, according to the CME FedWatch tool. Wall Street will focus on Chairman Powell's statement at the press conference immediately following the rate announcement. Meanwhile, Factory Orders will be updated on Monday; the U.S. Trade Deficit and ISM Services on Tuesday; and Consumer Sentiment on Friday. Argus Chief Economist Chris Graja's Call of the Week is the Institute for Supply Management's Services Index for October. Chris has offered the following commentary. 'This is an early and important indicator of 4Q economic activity. Consumer spending on services represents more than 45% of GDP. The huge category includes housing expenses, including rent, healthcare, transportation services, and food services and hotels. The Services Index printed at a healthy and expansionary 54.9 in September. We expect a small uptick to 55 in October, just above the consensus of 53, which suggests the economy is healthy and will keep growing.' The services category grew 2.6% in 3Q and contributed 1.21 points of the 2.8% increase in 3Q GDP according to the U.S. Bureau of Economic Analysis. Last week, the October jobs report delivered a mixed bag of information. Nonfarm Payrolls posted at 12,000 for October compared to a strong (but revised lower) 223,000 for September. The October number was impacted by the two recent hurricanes and the strike at Boeing, but still came in lower than expected. The Unemployment Rate was unchanged at 4.1%. Mortgage rates jumped for a fifth consecutive week and are now at 6.72% for the average 30-year fixed-rate mortgage. Gas prices fell four cents to $3.10 per gallon for the average price of regular gas. The Atlanta Fed GDPNow indicator is forecasting for 3Q and calls for expansion of 2.3%. The Cleveland Fed CPINow indicator for November is 2.68%. After this week's Fed rate decision, the next rate meeting is on December 18. If the Fed cuts this week, as is fully expected, the odds are at 83% for another 25-bps rate cut in December, again according to the CME FedWatch tool. We expect a rate cut this week and another in December, and then three more in 2025 (all by 25 bps).